States should have power to levy and collect income tax


According to the Constitution of India, income tax is a central subject. The Central Govt has only a few offices in states that too in cities and large towns. On the other hand state governments have offices even in remote villages. For example Village Administrative offices (VAO) which issue various certificates like income certificates, Community Certificates, Nativity Certificates etc, are located in all revenue villages. So, it is easy for state governments to know if any particular individual or company may have taxable income. The VAOs can maintain and update data on those having taxable income. This will minimize and almost eliminate the need for raids by income tax officers.

Further, instead of the central government collecting income tax and transferring part of the same to states, the state governments themselves can levy and collect the same. In order that the people are not taxed too much, the Finance Commission can suggest maximum central and state tax rates which together should not exceed the current or reasonable level. This is similar to the central and state GST.

In this context, it will be appropriate to state that the income which is invested for productive purposes like establishment of factories, transport organizations, commercial farming, service industries etc. which generate considerable employment, should be exempted from tax. After all the governments which collect taxes, are expected to use the money mostly for employment generating activities.

It may be added that in United States, most of the states levy income tax in addition to the Federal Government.


India -Taxing the super rich more


Recently there is a talk about taxing the super-rich more. At present there are In India only 3 rates i.e 10%, 20% and 30% of taxable income, for taxing the income of people in India. These slabs can be increased to 5 or 6. In several countries there are 5 slabs. In several developed countries, the maximum rate of income tax exceeds 50%. India can introduce tax rates of 40% and 50% for higher income groups. In countries like Italy and Netherlands, everyone has to pay income tax irrespective of the income. It is only fair that those who enjoy more benefits from government viz low income people should also be made to take some responsibility to pay at least a token contribution for the benefits. The lowest tax rate could be nominal –may be 1% or 2%. Cost of collection of income tax in the lowest slab would be high but ways can be found to minimise the cost of collection. Alternately indirect taxes like excise duty and sales tax rates should be increased.

Income from agriculture should also be taxed. However farmers should have the freedom to fix prices for their produce in the same way as industrialists fix prices for their products. Government should not interfere by regulations like procurement prices, ban on exports, export duty etc. Of course, governments can do away with the grants and subsidies.

The minimum wages should be so much that it is sufficient to meet all the basic needs and tax payments.